Repairs too expensive for a distressed property? Not always the case!

By
Real Estate Agent with Chapman Hall, REALTORS, Atlanta, GA GA RE License 129010

A buyer of mine has just purchased a short sale property. The seller was a single lady in her 30's who suffered financial distress when she was unemployed for several months. My buyer is getting a really great property in a nice community for a huge discount, about $55,000 less than the previous sale.

The Seller's Property Disclosure Statement noted several issues in this As-Is sale--the garbage disposal didn't work, nor did the heat and A/C, plus there was a leak in the laundry room into the room below. Because of the HVAC issues and laundry leak, the seller basically moved ouf of her home months ago. The listing agent said the seller just couldn't afford to have these things replaced or repaired, which is typical for a distressed seller; however, I'm wondering how much checking the owner did on these items with supposed issues.

My buyer's inspection found a key stuck in the garbage disposal which jammed the mechanism and caused it to stop working. A long screwdriver dislodged the mangled key, and guess what--the disposal works now.

The buyer had a plumber check the leak in the laundry room. The hot and cold faucet handles were both leaking, and the neck of the drain was cracked, so the leaking faucets and water from the washing machine hose drained into the room downstairs. All this repair took was a $75 service call.

The buyer had an HVAC technician come check the heat and air conditioning. By pulling out the edge of the filter, I knew what one issue was--the filter looked like furry black carpet, and the date on it was a month before the seller bought the property five years ago. The regular inspector found that the breaker tripped when the heat or A/C was turned on. The HVAC technician reattached two wires that were loose, serviced the systems, and $89 later everything was working fine. The systems didn't need to be replaced as was assumed.

Because of the presumed enormous cost of these maintenance items, this seller and agent discounted the property deeply to be priced lower than foreclosures and other short sales in the area. Another short sale is priced $10,000 more, and a foreclosure in the same community is priced $15,000 more. A non-distressed property in the same community is under contract for $35,000 more, and several current listings are priced $40,000 to $70,000 more.

In my initial inquiry about the property, I was told that the property needed $10,000 to $15,000 in repairs at least. My buyer spent about $400 for everything to be put in proper working order. Amazing!

I know the seller lost her job and was without regular income. If she got unemployment, I don't know, but I do know she kept her very expensive European car. I wonder if the seller would've tried to sell her home if she had the insight to get these items checked. I don't know...but I do know that she did herself a disservice by not having them properly checked--a disservice to the tune of $50,000 or more--which my buyer handled for about $400.

So the moral of my story is directed at distressed sellers and their agents--do everything you can to check the deficiencies of your property. The situation may not be as bad as assumed! (And if you can afford a BMW, you should be afford to maintain your property--but that's a totally different rant!)

Comments (1)

Anonymous
Rick Falls

You make some good points Don.

There can be tremendous value in distressed properties if a buyer has the guts to take on the problems associated with them. It can go both ways though. Expenses for repairs are often underestimated as well.

As a buyer of distressed RE the problem that I often see is exactly the opposite when it comes to pricing a property.

Very often a RE agent/broker will price at a "perfect world price" and leave a lot of losers (sellers and opportunistic buyers) in the wake of a lost opportunity to reset the dial (lower) on value and helping everyone involved get on with their life.

I'm glad you got your client a great deal and remember the seller accepted the offer and is likely liberated on some level to have gotten rid of the property.

 

 

 

 

Dec 30, 2010 06:35 AM
#1